GM hits the wall with its European Saab brand and is trying to force a Swedish solution.
General Motors took another drastic cost cutting step earlier today when its Saab unit filed for reorganization in Sweden. On Friday, the Vänersborg District Court in Sweden approved a request for reorganization and restructuring, which Saab’s representative submitted earlier in the morning. GM is trying to force the Swedish government to finance or guarantee the future of loss-making Saab in order to stop its own financial hemorrhaging as required under its U.S. Treasury loans.
Saab says the reorganization will create short-term stability that will make it possible to develop a long-term solution. Funding for the restructured company will need to be secured during the reorganization process and will be sought from both public and private sources.
GM said earlier this week that as part of its ongoing reorganization it would no longer support Saab. Rick Wagoner, GM’s CEO last Tuesday evening cited GM’s demonstrated ability to drastically cut costs as proof of its viability. True to his word, Saab’s viability is now threatened.
The announcement comes on the eve of the Geneva Auto Show, where Saab will unveil the 2010 9-3X model, one of three new models (9-5, 9-3X and 9-4X) due to appear during the next 18 months. Whether they will make it into production is now an open question.
“We explored and will continue to explore all available options for funding and/or selling Saab and it was determined a formal reorganization would be the best way to create a truly independent entity that is ready for investment,” says Jan Ake Jonsson, Managing Director for Saab Automobile.
GM for its part promised that its European division will set up a “viable mechanism for the timely payment” of Saab suppliers.
Saab says the reorganization is a “self-managed, Swedish legal process headed by an independent administrator appointed by the court who will work closely with the Saab management team.” Saab will submit a plan for reorganization to be presented to creditors within three weeks of today’s filing. As in other restructurings, a debt-for-equity-swap will likely be proposed. Whether creditors will agree or where new capital will come from in the depressed global market isn’t clear. What is clear is that GM will not be sending more money to Saab.
Court approval of the plan is required. If granted, the reorganization will occur over a three-month period and will require more funding to succeed. As part of the plan Saab says its design, engineering and manufacturing will be consolidated in Sweden. Relief from GM overhead charges and fees, depending on what they are, could help its cash flow. Depressed global car sales certainly won’t.
“The road ahead will not be easy. Many have already suffered considerably as a result of the crisis in the automobile industry and sacrifices will be a part of our future, but after a period of tough decisions we will have laid the foundations for a new beginning,” says Jan Åke Jonsson, Managing Director of Saab Automobile.
Whether this is the road to independence or the road to ruin remains to be seen.
Click here for the 2010 Saab 9-3X Geneva preview.
Click here for the GM Treasury Loan plan.
Click here for the Scramble for Money at GM Europe story.